Ask the average person about ways to invest in real estate, and they’ll probably rattle off ideas like buying long-term or short-term rentals, perhaps flipping houses. Never mind that flipping houses is a business model, not an investment.
Read More: 20 Best Cities Where You Can Buy a House for Under $100K
Find Out: 25 Places To Buy a Home If You Want It To Gain Value
Having worked in the real estate investment industry for over two decades, I’ve participated in just about every type of real estate investment available. And the overwhelming majority offer higher potential returns and fewer headaches than becoming a landlord.
If you love the idea of adding real estate to your portfolio but don’t want to mess around with renters, permits, property managers, inspections, contractors, lenders and every other hassle that comes with rental properties, try these hands-off investment strategies.
These seven real estate investment strategies will build your investment portfolio without you having to become a landlord.
Trending Now: Suze Orman’s Secret to a Wealthy Retirement–Have You Made This Money Move?
Public REITs
Most people have heard of real estate investment trusts (REITs), which make them a foothold on the journey to bigger and better passive real estate investments.
Don’t get me wrong, publicly traded REITs come with plenty of advantages. To begin with, they’ve performed well over the last half-century. The Motley Fool points out that between 1972 and the end of 2023, U.S. equity REITs delivered an average annual return of 12.7%, compared to 10.2% from the S&P 500. You can invest in less than $100 in REITs, using your regular brokerage account, and sell your shares at any time for free.
But those very advantages create REITs’ darker downsides. The liquidity creates volatility. The ease of access means you’re inherently earning market returns because you’re buying and selling for market prices on the public stock exchange. And speaking of those public markets, the fact that REITs trade on stock exchanges causes them to move in uncomfortable correlation with stock markets at large.
No, really: Wells Fargo analyzed the correlation between U.S. REITs and the S&P 500 over the decade ending in 2023 and found a 76% correlation.
For me, that defeats the purpose of diversifying my portfolio to include real estate.
Discover Next: After Trump’s Win, 1 in 5 Republicans Are More Likely To Purchase a Home in 2025
Private REITs and Funds
In recent years, real estate crowdfunding platforms such as Fundrise and Yieldstreet have opened up private funds and REITs to the general public. These investments don’t trade on public stock exchanges — you buy and redeem shares directly with the operator.
I’ve invested personally with many of these. I haven’t been particularly impressed with most of them.
As the organizer of a passive real estate investment club, I network with real estate operators on a near-daily basis. One of them just told me he bought his most recent apartment complex from Fundrise, as a distressed asset on the brink of foreclosure due to mismanagement.
Yikes.
Even so, many offer instant diversification with a low minimum investment. Just make sure you do your homework by reading firsthand reviews of them from reputable analysts.
Secured Loans
Most people think of equity investments when they think of real estate, but you can also invest in debts secured by real property.
My favorite real estate crowdfunding platform is Groundfloor, which lends short-term loans to home flippers. I’ve invested tens of thousands with them over the years, and have mostly been happy with them. Best of all, you can invest with as little as $10. But Groundfloor is far from the only platform for investing in secured debt.
“Debt funds, private lending, and mortgage note investments secured by real property can offer you real estate exposure without the typical landlord responsibilities,” said Chris Seveney, the founder and operator behind the mortgage note fund at 7e Investments. “They’re a great option for those seeking passive returns and diversification, especially if you’d rather avoid dealing with tenants or property upkeep.”
I happen to know Seveney personally, and his mortgage note fund has never missed a payment to investors. But even he is quick to urge investors to do their homework. “Just be aware, every type of investment comes with risk,” he said.
Real Estate Crowdfunding
Over the last six or seven years, several platforms have launched that allow non-accredited investors to buy fractional shares of single-family rental properties.
The oldest and best known of these is Arrived (formerly Arrived Homes). I’ve invested personally in over a dozen homes on Arrived, and find both the platform and the $100 minimum investment user-friendly.
Just don’t expect returns that will light the world on fire. Most homes come with projected cash flow yields of 2-5%, and annual appreciation in a similar range, for a total annualized return in the 5-10% range.
Real Estate Syndications
The average middle-class investor has never heard of real estate syndications, but the wealthy have parked money in them for the better part of a century.
Most syndications target annualized returns in the mid-teens or higher and come with the full cash flow, appreciation, and tax advantages that direct owners enjoy. Our investment club frequently vets and invests in syndications, and many come with modest risks to boot.
So why doesn’t everyone invest in them?
To begin with, most come with a high minimum investment of between $50,000 and $100,000. Even if you have that much to invest, many only allow wealthy accredited investors to participate. The Securities and Exchange Commission regulates these private equity investments aggressively and doesn’t make it easy for everyday people to invest.
These investments also don’t offer liquidity. Once you invest, your money remains locked up for years on end, typically four to seven but sometimes longer.
Like all passive investments, you also forego control. “Passive truly means passive once you commit capital,” said Pat Zingarella, founder of operator review platform Invest Clearly. “You no longer have influence over decision-making, so do your own due diligence before you invest, especially on the syndicator.”
If you don’t mind the lack of liquidity and long-time commitment, you can invest in smaller amounts by joining an investment club and going on these with other investors.
Private Equity Real Estate Funds
While most syndications allow you to invest in a single large property or a bundle of a few, you can also invest in real estate funds that own many properties. That allows for diversification, even as you enjoy all the benefits of private equity real estate.
“By partnering with experienced operators, investors can capitalize on real estate’s earning potential and tax advantages without managing all the day-to-day responsibilities,” said Seth Williams, real estate and founder of REtipster.
He should know — he’s invested on both sides of that equation.
Private Partnerships
You can also invest passively in real estate by partnering with an active investor. You front some or all of the money as a silent partner, they do the work.
For example, our investment club has partnered with both house flippers and single-family home developers to go in with them on projects. We get a cut of the profits, after putting up the lion’s share of the funds.
As with other types of private equity investing, it requires enormous trust in the operator’s experience, skill, and integrity. Only invest with people you feel absolute confidence in, who you trust to steward your money well.
You don’t need to become a landlord to enjoy the cash flow, appreciation, and tax benefits of owning real estate. I own a fractional interest in roughly 3,000 units — and I haven’t taken a tenant phone call in years.
I can tell you firsthand, that I don’t miss being a landlord one bit.
More From GOBankingRates
This article originally appeared on GOBankingRates.com: 7 Hands-Off Ways To Invest in Real Estate Without Becoming a Landlord